Dollar Recovery Signals Confidence Powell Will Escape Indictment

Above: President Donald Trump tours the Federal Reserve alongside Fed Chair Jerome Powell and Sen. Tim Scott (R-SC), Thursday, July 24, 2025. (Official White House Photo by Daniel Torok)

Dollar set to rebound as Powell avoids indictment.

The dollar is set to rebound as the latest efforts by the White House to capture the Federal Reserve fail.

This is the base case assumption at Standard Chartered, one of the world's biggest banks, where analysts say the investigation or subpoena served on the Federal Reserve does not amount to a charge.

In a note to clients midweek, Standard Chartered analysts Steve Englander adds that "if there is no indictment, Powell speculation will likely fade."

That outcome became all the more likely after it was reported that Chairman Jerome Powell wrote to senators last July with details about the Federal Reserve’s $2.5bn renovation project.

This complicates the White House's claims that he misled Congress. The four-page letter, which has not been previously reported, was sent two and a half weeks after Powell testified to the Senate banking committee about the project’s cost overruns.

"An indictment requires alleging an intent to deceive, and it is possible that prosecutors will not find enough evidence to justify an indictment," says Englander.

Above: The dollar index shows the USD has recovered initial losses following the news of legal action being taken against the Fed.

The dollar initially fell on news of legal action being pursued against the Fed, but it has since pared those losses as investors grow more confident that a market-friendly outcome to the saga awaits.

Trump and senior administration officials have nevertheless indicated they will continue to pursue the matter.

The President told reporters Tuesday, "I think it’s fine what I'm doing... we have a bad Fed person."

"If we are wrong, however, and an indictment is put forward, the USD could come under more extended pressure. The President could argue that this gives a basis for dismissal for ‘cause’, however thin the premise is," says Englander.

If Trump's legal efforts to remove Powell succeed, it will set a precedent that other Fed officials cannot ignore.

"Other governors could similarly be put aside on thin pretexts in favour of more pliant officials," says Englander.

On this basis alone, Trump would see merit in pursuing Powell, despite his term nearing its end.

If he can get Powell, then his indirect grip on the Fed's personnel and policy tightens, allowing him to effectively capture the Fed.

"If employment-at-will applies to Fed governors, monetary policy would likely be easier and credibility lower, which are negatives for the USD," says Englander.